The Most Hated Stock Rally in History?

Could this be the most hated stock market rally in history? Not only do traders not like the market, the average public doesn't believe the stock market is rallying.

Yet it is. The S&P 500 Index is up 12.9 percent, one of the best year-to-date performances in a while.

The S&P 500 less than 1 percent from a four-year high. NYSE short interest is near a five-year peak, which is a decent contrarian indicator.

Why the rally?

1) A widespread belief that more quantitative easing (explain this) is coming from the U.S. Federal Reserve and the European Central Bank: traders in particular are expecting the ECB to lay out more definitive steps on a bond buying program at its next meeting on September 6th;

2) There's nothing for sale, and people cannot afford to be under-invested; most hedge funds —and even many large cap mutual funds — have underperformed this year; and

3) While the global economy is still weak, and Europe is certainly not looking like it is bottoming, there's hope that China will soon embark on a much more aggressive infrastructure program. The Australian Central Bank left interest rates unchanged today and said China's growth was "not slowing further".

As Europe has calmed down, the U.S. market leadership has been inverting. In a month where the S&P is up 1.6 percent, defensive/dividend payers (telecoms, drug companies, utilities, and Real Estate Investment Trusts) have underperformed this month, while growth/cyclicals have outperformed.

Dividend payers in August:

Drugs flat

REITs down 0.7 percent

Telecom down 0.8 percent

Utilities down 1.0 percent

Cyclicals in August:

Oil Refining/marketing up 6.9 percent

Construction/engineering up 6.7 percent

Coal up 5.5 percent

Steel up 6.0 percent

Of course, anything can go wrong in Europe. And if that doesn't impress just look at the CBOE Volatility Index (VIX), which is near a multiyear low; while the value of the VIX as an indicator of tops and bottoms is more doubtful these days, the lows in March did correctly telegraph the highs of the market that same month.